Correlation Between Herc Holdings and McGrath RentCorp

Can any of the company-specific risk be diversified away by investing in both Herc Holdings and McGrath RentCorp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Herc Holdings and McGrath RentCorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Herc Holdings and McGrath RentCorp, you can compare the effects of market volatilities on Herc Holdings and McGrath RentCorp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Herc Holdings with a short position of McGrath RentCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Herc Holdings and McGrath RentCorp.

Diversification Opportunities for Herc Holdings and McGrath RentCorp

0.03

Correlation Coefficient

Herc Holdings  McGrath RentCorp

Significant diversification

The 3 months correlation between Herc and McGrath is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and McGrath RentCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McGrath RentCorp and Herc Holdings is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Herc Holdings are associated (or correlated) with McGrath RentCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McGrath RentCorp has no effect on the direction of Herc Holdings i.e., Herc Holdings and McGrath RentCorp go up and down completely randomly.

Pair Corralation between Herc Holdings and McGrath RentCorp

Considering the 90-day investment horizon Herc Holdings is expected to under-perform the McGrath RentCorp. In addition to that, Herc Holdings is 1.72 times more volatile than McGrath RentCorp. It trades about -0.23 of its total potential returns per unit of risk. McGrath RentCorp is currently generating about -0.34 per unit of volatility. If you would invest  11,996  in McGrath RentCorp on February 5, 2024 and sell it today you would lose (1,096) from holding McGrath RentCorp or give up 9.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Herc Holdings  vs.  McGrath RentCorp

Herc Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Herc Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Herc Holdings is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

McGrath RentCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McGrath RentCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Herc Holdings and McGrath RentCorp

The main advantage of trading using opposite Herc Holdings and McGrath RentCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Herc Holdings position performs unexpectedly, McGrath RentCorp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in McGrath RentCorp will offset losses from the drop in McGrath RentCorp's long position.

The idea behind Herc Holdings and McGrath RentCorp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.